Original Content created by a member of CoinDCX. The views and opinions expressed within this post belong solely to the author.
Author: Neha Singh; Director, Public Policy
India’s regulatory framework for virtual digital assets (VDAs) has seen important developments in the first three months of 2023. The Ministry of Finance has brought VDA providers under the ambit of the Prevention of Money Laundering Act, requiring all intermediaries to comply with relevant KYC standards and report suspicious transactions. This move comes ahead of the Financial Action Task Force’s assessment of India in the fourth round of mutual evaluations later this year.
The scope of mutual evaluations involve two aspects: technical compliance – for assessment of whether the necessary legal framework and other associated measures are in force and whether the supporting institutional framework is in place; and effectiveness, to determine if the systems are working towards achieving the defined set of outcomes. In October 2021, the FATF updated its 2019 Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (VASPs).The FATF standards require countries to assess and mitigate their risks associated with virtual asset financial activities and providers; license or register providers and subject them to supervision or monitoring by competent national authorities. On 10th March, FIU released guidelines called AML & CFT Guidelines for Reporting Entities Providing Services Related To Virtual Digital Assets and aim to provide a summary of the provisions of the applicable anti-money laundering, counter-terrorism financing and proliferation financing legislations. This is an opportune time for the VDA industry to come together and help India pass its FATF assessment by implementing checks and balances to keep AML/CFT activities in check.
Separately, The Reserve Bank of India has also asked financial intermediaries to follow KYC norms and other relevant standards for remittances following transactions in crypto assets.
The government, from time to time, has also acknowledged the limitations of having a stand-alone domestic regulation for virtual assets and the need to evolve a common international regulatory framework as these assets are global in nature. Therefore, India is utilizing the G20 platform to catalyze a common framework with its member countries. In February, IMF released a paper on “ELEMENTS OF EFFECTIVE POLICIES FOR CRYPTO ASSETS”. The paper provides guidance to IMF member countries on key elements of an appropriate policy response to crypto assets and it also aims to support economic and financial stability across its membership. It sets forth a framework of nine elements that can help members develop a comprehensive, consistent, and coordinated policy response.
In addition, the National Cyber Crime Reporting Portal-1034 has included VDAs in the reporting framework to protect consumers from cyber fraud cases. This is great news for the industry and ensures consumer protection. The reporting platform has been made operational by the Indian Cyber Crime Coordination Centre (I4C) under the home ministry, with active support and cooperation from the Reserve Bank of India (RBI), all major banks, payment banks, wallets and online merchants. This is a great move by the government for consumer protection.
In the last parliamentary session, we also saw a rise in the number of questions related to web3 and VDA industry which clearly shows the developing interest of our parliamentarians in this space.
In the budget this year, Crypto industry players were expecting updates on the possible reduction in 1 percent TDS. The Finance Bill, however, mentioned an amendment in the Income Tax Act under section 271C, which will also penalize non-payment of crypto or VDA TDS (tax deducted at source). The message was very clear to not use non-compliant platforms and to use only compliant platforms to invest in crypto-assets.
Overall, India is slowly but surely moving towards regulation of crypto assets, which will lead to responsible development of Web3 space while ensuring consumer protection. It will also ensure appropriate checks and balances in place for anti-terror frameworks to function properly.
Original Content created by a member of CoinDCX. The views and opinions expressed within this post belong solely to the author.
Author: Neha Singh; Director, Public Policy
